Any and all questions I can and try to answer are always free

Let’s start off with delta. Delta is roughly the amount you’ll make/lose with a contract for every $1 the underlying stock moves. Example:

Let’s say my XL contract has a delta of -0.50 (negative .50). For every $1 XL moves down (in the same direction as delta), I gain $50. If XL moves up $1, I lose $50.

Delta negative means you’re net short the market while delta positive means you’re net positive. Over the past couple of weeks, I’ve been shorting everything I can in the market, so my portfolio has more negative deltas than positive deltas.

Now, what happens if the market rallies like it did yesterday? Well if you’re short everything and the market moves higher, you’re going to be hurt Some traders “hedge” or buy insurance on their positions.

Example: I’m currently delta negative by 1000, i.e. my portfolio has -1000 deltas. If I feel I need insurance, or a hedge, I can purchase something that follows the entire market, like the SPY or DIA. Let’s say I purchase 500 positive deltas worth of the SPY or DIA. Now, my portfolio is net negative 500 deltas. If the market goes up, sure, I’ll hurt. But I won’t hurt as bad as if I didn’t have insurance.

Hedging is a way that can help soften your losses should the need arise. Today I hedge myself a bit just in case we bounce tomorrow.